Caves and Quagmires

Last week with Tiki torches held high above our heads we blazed a path into the colossal cave of “How QiT works.” I promised to re-light the torch this week and show you examples of trades. However, before we trudge back to the cave I would like to dip our toes into the quagmire we so eloquently avoided last week. The quagmire we called optimization.

Why We Optimize

The market is always changing so the algos need to change along with it. QiT has a few tools in its toolbox to augment this process. Tools like the circuit breaker will move us into cash when the portfolio is zigging and the market is zagging.

But another tool that is more proactive is optimization.

What is Optimization

Each filter that is used to narrow down the stock market into a manageable list has many parameters. For example, a moving average can be daily, hourly, weekly. It can be from 1 to almost infinity.

We need to examine every one of those parameters like Benedict Cumberbatch’s Sherlock would investigate a blood spot at a crime scene. We need to see if the combination of parameters we currently have in our test tube boosts the Compounded Annual Return. Or does it reduce the Max Drawdow?

But just like the rest of us, filters do not live in a vacuum.

Every parameter applied to each filter can – and does – affect all the others. So, it is incumbent upon the developer to test combinations of parameters and examine how one interacts or affects, the other. Or how the combinations move the bottom line. The number of backtests you have to run is astronomical.

When I say I’ve done 1000s of backtests, I’m not using hyperbole.

One of the filters I use is a pullback, which is a limit order a small percentage below today’s close. This is a very sensitive filter and one I modify more often than the others.

I recently changed the Large Cap Retirement pullback from 1.0% to 0.0%. One eagle-eyed member noted this change and directed me a statement on the performance page, “We enter with a limit order a small percentage below today’s close.”

A 0.0% is not a small percentage, it is no percentage. I’m glad Frank caught that and hope others are watching the portfolios as closely as he is..

I’ve updated all the performance pages to accommodate this parameter in the pullback filter.

The Anatomy of a Trade

Now let’s forge our way back into the cavern and return to the promise I made last week and dissect a trade. I made the choice, without anyone giving me permission, to go easy on myself and picked one of the simpler algorithms, the Large Cap Retirement.

The filters applied to the Large Cap Retirement are:

1. New weekly high occurred < 20 days ago

2. Index is $NDX, $SPX or $RUI

3. Two consecutive downward closes

4. Connors RSI (cRSI) < 40

5. Above the 200MA

6. Exit when cRSI > 55

ULTA setup on May 25th for possible entry May 29th.

Here is the trade on the Member’s site.

Here is the why ULTA was posted as a possible trade on May 25th:

1. May 25th was < 20 days from the May 21st new weekly high

2. ULTA is a $NDX constituent

3. May 23rd and 24th were down days

4. cRSI was > 40

5. ULTA was above its 200MA

May 25th was the setup bar

Before the market opens on May 29th we place an order to buy ULTA at $248.54. I can hear the wheels and cogs turning in all your heads, “How did you pick $248.54?” How did the algo settle on that price? The close on the 28th (the Setup Day) was $251.05. The pullback percentage on that day was 1.0% so we place a limit order for the 29th ($251.05 * 99%) = $248.54.

On the 29th, the stock opens at $249.44 but falls to a low of $248.25 and we are filled.

On the same day we were filled, cRSI climbed to > 55, the algos exit parameter. This means the trade entry and exit setup happened the same day. We placed an exit order the next day and depart this position on May 30th at the open, $255.43.

The pullback percentage has been optimized and, as I mentioned earlier, was 1.0% on May 25th but is now 0.0%.

Tip of the Iceberg

This is the basis of the algo but far from what makes a well designed and robust strategy. We now need to apply:

1. Advance Slot Technology

2. Cash Account or Margin (how we reallocate funds)

3. Exit with a limit or market at open (large caps exit with MOO)

4. Rounding small numbers – a bane of all Quant services

5. Tick Size Pilot Program

These filters are changing as the market changes in an attempt to stay keep in sync and are altered behind the scene. I’m sure you don’t want to know each and every detail of what I do daily.

You just want me to “Show you the Money.”

So here is the money!

large Cap Retirement is making new equity highs.

Over the last year, this portfolio fell below its circuit breaker numerous times and you were pulling your hair out because it wasn’t trading. Now you see it was all worth it.

It’s now time to extinguish our Tiki torches and return to daylight. I hope I accomplished my mission of explaining how QiT works.

Subscribe to our mailing list

Grab Your Free Trial

Categories

Login

Search

Sign up for our Awesome Newsletter

This page is having a slideshow that uses Javascript. Your browser either doesn't support Javascript or you have it turned off. To see this page as it is meant to appear please use a Javascript enabled browser.

Marge

It took me only 5 minutes to put my trades onto IB tonight Thanks Jane- so easy and quick. You have lots of TIME putting on the trades. There is no stress and no decisions you have to make!! Easy Peesy!!

Eric

Jane, just made all-time equity highs in my IRA thanks to Quantitrader, way to go!

Eric

I joined this service because I love the process of Quant trading, removes all of the emotions. Many days I when I was traveling, I couldn't even tell you where the markets closed, but just entered my signals per the system and watched my account grow.

Mark

Good work. I am really very excited about the results so far.

Roger

My background with Connors and Amibroker gave me greater appreciation for all the work you have put into getting the trading results that attracted me to QiT. I thank you for your efforts and look forward to continuing.

Your services pay for themselves. I have belonged to many trading services and trading rooms and I find you and your services to be the most honorable and compassionate to the little guy.Keep up the good work,

I simply wanted to thank you for adding the Conservative play into QiT. I also appreciate adding the layer of clarity by identifying what each level means on the Signal sheet. Keep up the great work to continue improving QiT.

Shari

I, for one, sincerely appreciate all your efforts and the QiT system itself, and I'm looking forward to really seeing how it will work for me.

Mark M

I know that drawdowns are inevitable. In the past, this made me lose money by hopping from system A to system B to system C etc. Losing and losing and losing. Always leaving right before the winning periods got in :-) That is why I like Quantitrader. I will stay ...

Let me share with you two different perpectives of the QT system of algo trading.In 1978, I joined a large Wall Street firm as a retail broker. In the following 13 years as a broker and as a Principal, I saw several things that kept most brokerage clients from making ...

Today has been an awesome day across the board for me. I am at a new equity high on L2-RP, no losses on L3 ETF (to be honest only a handful of trades so far) and close to break even on L3 Ultra. I started trading the ultra signals ...

Mary

Trader Janie, I want to tell you how much that I am coming to admire you Your willingness to listen to our concerns and your new and repeated explanations to our concerns as well as your attempts at tweaking what you have already spent so much of your life ...

Subscribing to QiT allows me to save money and time by not having to pay for a datafeed, a trading platform, etc, and not spend hours running the stock screens, managing the datafeed, managing the trade signals, etc. Instead, all I do with QiT is check the signals each evening ...

Great article! As I was reading it, I felt the crosshairs right on my forehead, having committed most of the sins you describe! I have long been a student of Larry Conners, his methods and research, I definitely believe in the system, but have often let my “trader” persona take ...

Hi Jane,I just wanted to let you know I really appreciate the trade detail you post on the website. I like seeing the trade history of the past 30 days showing the entry and exit price. I compare this to my exit price just to make sure we are tracking ...